FILE PHOTO: Jeffrey Smith, CEO of Starboard Value LP speaks during an interview on CNBC on the floor of the New York Stock Exchange (NYSE) in New York, U.S., March 22, 2019. REUTERS/Brendan McDermid
April 16, 2019
By Svea Herbst-Bayliss and Jessica DiNapoli
NEW YORK (Reuters) – Activist investment firm Starboard Value has taken a new position in KAR Auction Services, the firm’s founder Jeffrey Smith said at a conference on Tuesday.
He called the company’s valuation “compelling” at the 13D Monitor Active-Passive Summit. “We believe KAR is a tremendous opportunity,” Smith said, adding that he thinks there is plenty of room for margin improvement and expects that portions of the business can be spun off in the near term.
Last year, KAR said it would spin out a salvaging business, allowing Starboard’s investment to focus on the company’s used car auctions.
“They are not commodities, it’s not easily replicable,” Smith said. “They are not tubes of toothpaste.”
The stock rose 6 percent in premarket trading after Smith spoke.
Smith added that the total number of cars on the road have been increasing and that vehicles have been lasting longer.
“That’s good for the used car market,” he said.
KAR considered going private in 2012, Reuters reported at the time. The auto auction company had been taken private once before in 2007 in a $3.7 billion deal, and then went public in 2009.
There had been confusion recently over whether or not KAR’s salvage business would be spun out.
“That led to the opportunity for us to buy a bunch of stock,” Smith said.
But KAR recently received a private letter ruling from the U.S. Internal Revenue Service deeming the spin-off as tax free and allowing the company to move forward with its plans.
Smith also discussed the firm’s position in healthcare information company Cerner Corp where the hedge fund reached a settlement and obtained board seats last week.
Smith said that a refreshed board, commitments to buy back more shares and to reach for more aggressive targets will serve the company well. The company’s stock price rose 10 percent last week when the settlement was announced.
During the first quarter of 2019, Starboard was the most active activist investment firm, starting seven new campaigns that pushed for change at companies ranging from Bristol-Myers Squibb Co to pizza chain Papa Johns.
Starboard manages roughly $5 billion in assets, according to a regulatory filing made last month.
Starboard rose to prominence by throwing out the entire board at Darden Restaurants in 2014 and has won board seats this year at eBay, healthcare information company Cerner Corp. and Magellan Health.
(Reporting by Svea Herbst-Bayliss and Jessica DiNapoli; Editing by Susan Thomas)